Tag: Chevron Corporation (CVX)

Geopolitical Risks in 2024: Why ExxonMobil (XOM) Could Be Your Best Energy Play

Posted on by The INO.com Team

The energy sector in 2024 finds itself at the intersection of intensifying geopolitical conflicts and evolving market dynamics. In the Middle East, tensions remain high, with key oil producers like Iran, Saudi Arabia, and Israel facing intermittent conflicts that could disrupt energy supplies. Meanwhile, the Russia-Ukraine conflict continues to impact the global energy supply chain, keeping European and global natural gas prices volatile. In addition to this, OPEC’s ongoing management of output remains a critical factor in stabilizing or destabilizing oil prices. 

Amid this turbulence, energy investors are seeking safe havens, and Exxon Mobil Corporation (XOM) stands out. Its global reach, diverse energy portfolio, and adaptability in transitioning towards cleaner energy alternatives could make it a more resilient option in a precarious energy market.

Let’s explore why ExxonMobil could be your best energy pick this year.

ExxonMobil’s Strategic Positioning: Mitigating Risks Through Global Reach 

ExxonMobil has established itself as a global energy giant with operations across key oil and natural gas regions, including North America, Africa, and the Middle East. This geographical diversity has allowed the company to mitigate risks from localized disruptions. A key example is Exxon’s ongoing success in Guyana and the Permian Basin, where it has achieved record production levels. This strategic balancing of assets ensures steady output even when geopolitical shocks threaten some regions.

In addition to its fossil fuel ventures, ExxonMobil is also investing heavily in renewable energy technologies, particularly carbon capture and storage (CCS). The company’s carbon capture initiatives have set industry benchmarks, with a recent agreement to store 5.5 million metric tons of CO2 per year. These innovations not only align with global decarbonization efforts but also position ExxonMobil for long-term growth, irrespective of traditional energy sector volatility.

Energy Sector Outlook: Oil Prices, OPEC, and the Energy Transition 

The energy market remains volatile, with oil prices staying between $60 to $80 per barrel. OPEC’s continued influence over supply means that any decisions to cut or boost production can swing prices significantly. For ExxonMobil, however, this volatility plays a role in its strengths. The company's increased focus on “advantaged assets,” such as its growing production from Guyana and the Permian Basin, provides a buffer against sudden price drops.

ExxonMobil’s heavy investments in energy transition also stand out. From the development of virtually carbon-free hydrogen to Proxxima™, a product that transforms lower-value gasoline molecules into high-performance resins, ExxonMobil is not just a fossil fuel player anymore. Its energy transition investments not only hedge against future regulatory risks but also attract new markets with high margins. This strategic shift gives ExxonMobil a crucial edge over other energy majors that are slower to adapt.

ExxonMobil vs. Competitors: A Clear Winner in Risk Management and Renewables 

When compared to its closest competitors like Chevron Corporation (CVX) and BP p.l.c. (BP), ExxonMobil's positioning in both fossil fuels and renewable technologies is more robust. Chevron has similarly diversified, focusing on U.S. shale and renewable natural gas, but it lacks Exxon’s scale in regions like Guyana and its aggressive moves into CCS. BP, meanwhile, has taken an ambitious turn towards renewables, but its focus on divesting from oil and gas has come at the cost of reduced cash flow from its upstream segment.

ExxonMobil, by contrast, manages geopolitical risk more effectively through its wide geographic spread, diverse asset portfolio, and continued dominance in oil and gas production. While it remains committed to energy transition, it hasn’t shed its traditional revenue sources prematurely, giving it the financial flexibility that BP currently lacks.

Investor Takeaway: Why ExxonMobil Stands Out 

Given the current geopolitical environment, ExxonMobil stands out as a compelling investment in the energy sector. Its strong second-quarter earnings of $9.2 billion, supported by record production and cash flow, underscores its financial resilience. Furthermore, Exxon’s aggressive capital expenditures, totaling $28 billion for the year, suggest the company is gearing up for sustained growth in both traditional and renewable sectors.

The combination of solid dividends—$4.3 billion distributed in the second quarter alone—and a robust share buyback program offers stability in volatile times. In a world where energy prices can be thrown into disarray by geopolitical shocks, Exxon’s diversified and well-balanced portfolio is likely to provide both stability and growth potential.

Is It Time to Buy the Dip in Oil Majors or Stay Cautious?

Posted on by The INO.com Team

Oil prices have been on a wild ride recently, dropping from $92 a barrel last year to around $70. Speculations have emerged that Saudi Arabia might aim to push prices down to $50 amid internal disagreements within OPEC+. However, rising tensions in the Middle East are shifting the narrative once again, with fears that a regional war could send crude prices soaring.

Just last week, U.S. crude oil surged over 3% as the market braced for potential Israeli strikes on Iran in retaliation for missile attacks. This anxiety led to a significant rally, with the U.S. benchmark West Texas Intermediate (WTI) climbing 9.09% (the largest weekly gain since March 2023), while Brent crude experienced an impressive rise of 8.43% (marking its biggest advance since January 2023). It’s clear that large swings in oil prices have profound effects on the U.S. economy, making investors increasingly cautious yet opportunistic.

Adding to the complexity, Saudi Arabia recently announced plans to ramp up its oil production starting in December, stepping away from its previous target of maintaining $100-per-barrel prices. This move, coupled with the resolution of a political dispute in Libya that could see an increase of 500,000 barrels per day in supply, temporarily lowered global oil prices.

Yet, the situation remains precarious, particularly with Iran’s involvement and the potential for further conflict. If the situation escalates, particularly if Israel targets Iran’s oil facilities, it could put as much as 4% of global supply at risk, which could send prices skyrocketing.

Despite the recent volatility, retail investors are increasingly diving into oil-linked products. While the market has been somewhat subdued in its reaction to the unfolding crisis, experts caution that complacency could be dangerous. Goldman Sachs suggests that a significant fall in Iranian output could boost oil prices by $20 per barrel, while others, like Swedish bank SEB, even warn that, in a worst-case scenario, prices could climb to over $200.

As we navigate this uncertain landscape, marked by fluctuating crude prices between $66 and $96 per barrel and weak demand from China alongside lackluster global economic data, the outlook for oil remains murky. However, the recent escalation in the Middle East has renewed fears of potential supply disruptions, especially if military conflicts escalate further. This leaves investors questioning: Is now the right time to buy the dip, or is it wiser to exercise caution?

Stock to Buy: Chevron Corporation (CVX)

Chevron Corporation (CVX) has long been a pure-play U.S.-based energy giant. However, the landscape of energy is shifting, and CVX is proactively adapting to the future of energy. The company understands that oil and gas won't be the only energy sources in the future, so it is moving into clean energy as part of its long-term strategy. It plans to invest $10 billion in lower-carbon projects by 2028.

The company is working on carbon capture projects, which help reduce harmful emissions, and, in this capacity, it operates one of the world’s largest integrated CCS projects, Gorgon. Additionally, Chevron is developing the Bayou Bend carbon capture hub and exploring renewable energy options like hydrogen and geothermal energy through projects like the Advanced Clean Energy Storage Delta in Utah, set to begin operations next year.

Moreover, its recent acquisition of Hess for $53 billion strengthens its portfolio, even amid regulatory challenges. Analysts suggest that Chevron's strategy of balancing traditional oil and gas with new growth areas, particularly in the Permian Basin, will enhance its profitability. The company aims to increase its production to nearly 4.0 million barrels of oil equivalent per day by 2027, driven by investments in the Permian Basin, Kazakhstan, the Gulf of Mexico, and new opportunities in Mexico and Brazil.

In the second quarter ended June 30, 2024, CVX’s total revenues and other income increased 4.7% year-over-year to $51.18 billion. The company’s attributable net income came in at $4.43 billion or $2.43 per share, down from $6.01 billion, or $3.08 per share, for the same quarter last year. Even though profits have dipped, Chevron still has $9 billion in cash and a low debt-to-equity ratio of 10.7%. During the quarter, the company returned $6 billion to shareholders, including $3 billion in dividends and $3 billion in share buybacks (marking the ninth consecutive quarter of over $5 billion returned to investors).

On September 10, demonstrating its commitment to returning value to shareholders, the company paid a quarterly dividend of $1.63 per share. CVX pays an annual dividend of $6.52, which translates to a yield of 4.33% at the current share price. It has a payout ratio of 52.4%. For the fiscal year 2025, its revenues are expected to increase marginally year-over-year to $198.58 billion, while its EPS estimate of $12.44 indicates a 14.1% growth from the prior year period. Moreover, the stock has gained over 6% in the past month. Considering these factors, it could be wise for investors to scoop up the shares of this stock.

Stock to Hold: Exxon Mobil Corporation (XOM)

Exxon Mobil Corporation (XOM) explores and produces crude oil and natural gas. It also manufactures, trades, transports, and sells crude oil, natural gas, petroleum products, petrochemicals, and specialty products. It operates through three segments: Upstream; Downstream; and Chemical.

In May, ExxonMobil bolstered its position in the Permian Basin by acquiring Pioneer Natural Resources Company, enhancing its upstream portfolio with a combined 1.4 million net acres and an estimated 16 billion barrels of oil equivalent resources. The company anticipates that production from the Permian will more than double to 1.3 million barrels of oil equivalent per day in 2023, aiming for 2 million barrels per day by 2027. Additionally, ExxonMobil has a strong project pipeline in offshore Guyana, where low production costs will allow it to generate substantial returns.

XOM’s total revenues and other income for the second quarter ended June 30, 2024, increased 12.2% year-over-year to $93.06 billion. Its net income rose 17.3% from the year-ago value to $9.24 billion, while its earnings per common share came in at $2.14, representing a 10.3% year-over-year growth.

Analysts expect XOM’s EPS for the fiscal third quarter (ended September 2024) to come in at $1.98, representing a 12.7% year-over-year decline. Likewise, the company’s revenue is expected to decrease marginally from the year-ago value to $90.72 billion. Over the past year, the stock has returned over 25%, which is impressive. However, we think that XOM could be watched for now and waited for an opportunity to enter and tap into its long-term growth prospects.

Chevron vs. NextEra Energy: Which Dividend Stock is the Better Buy?

Posted on by The INO.com Team

Despite the industry challenges, Chevron Corporation (CVX) and NextEra Energy, Inc. (NEE) are both gaining significant traction and rewarding shareholders with reliable dividends. But if you had to choose between them, which would be the better buy?

Chevron's Dividend Strength Over 37 Years

Chevron is one of the largest integrated energy majors globally, with operations spanning oil production, transportation, and processing. This strategic spread helps cushion the inherent volatility in oil and gas markets, ensuring stability and sustained growth.

Recently, oil prices dipped after hitting seven-week highs. Brent crude futures slipped to $85.27 a barrel, while U.S. West Texas Intermediate crude dropped to $81.47 per barrel. Despite the cyclical nature of the oil sector, Chevron’s solid operational and financial performance continues to shine through.

In its latest earnings release, the company reported a double-digit increase in worldwide production and returned $6 billion in cash to shareholders. CVX beat first-quarter earnings estimates, with an adjusted EPS of $2.93, surpassing analysts' expectations of $2.87. U.S. production surged to 1.57 million barrels of oil and gas per day, a 35% increase from a year ago, thanks to strong output from the Permian and Denver-Julesburg basins.

What truly sets Chevron apart is its financial muscle. The company’s debt-to-equity ratio is a mere 0.12, the lowest among its peers. This low leverage gives CVX the flexibility to support its operations and sustain its dividends even during downturns, providing a significant competitive advantage.

In the first quarter of 2024, Chevron’s return on capital employed exceeded 12%, reflecting efficient management and strategic investments. The company increased its quarterly dividend by 8% sequentially to $1.63 per share and repurchased nearly $3 billion worth of its shares.

With 36 consecutive years of dividend growth and a forward dividend yield of 4.16%, Chevron offers investors a compelling mix of income and growth potential. CVX has a four-year average yield of 4.35%, and its dividend payouts have grown at a CAGR of 6.4% over the past three years.

Moreover, the company aims to grow its annual free cash flow (FCF) by nearly 10% through 2027, even if Brent crude prices fall to $60 per barrel. With Brent crude currently around $83 per barrel, Chevron has ample room for growth. CVX’s strategy focuses on improving ROCE by investing in high-return areas like the Permian Basin, expected to drive substantial cash flow growth.

Increasing cash flow and robust dividend growth make CVX an attractive long-term investment. The company’s ability to navigate market fluctuations and maintain financial stability positions it as a top choice for investors seeking security and growth in the energy sector. Shares of CVX have gained over 4% over the past six months and nearly 5% year-to-date.

How Is NEE Positioned to Reward Shareholders?

NextEra Energy is a dual force in the energy sector, uniquely positioned with substantial operations in regulated utilities and renewable energy. As one of the largest regulated utility companies in the U.S., NEE enjoys stable earnings through its main subsidiary, Florida Power & Light (FPL).

FPL's recent expansion efforts, including the addition of 1,640 megawatts of new solar capacity, underscore its commitment to clean energy and meeting the growing electricity demands. In the first quarter that ended March 31, 2024, FPL reported a net income of $1.17 billion or $0.57 per share, reflecting an increase of 9.5% and 7.5% year-over-year, respectively.

Simultaneously, NextEra Energy Resources, the company's renewable energy arm, continues to advance in sustainable energy production. The segment had a record quarter, adding approximately 2,765 megawatts of new renewables and storage projects to its backlog. Its adjusted earnings for the quarter were $828 million and $0.40 per share, up from $732 million and $0.36 per share in the first quarter of 2023.

Financially, NEE's performance remains robust. During the quarter, the company’s adjusted earnings amounted to $1.87 billion or $0.91 per share, reflecting an increase of 11.6% and 8.3%, respectively. Its adjusted EBITDA was $462 million, and $164 million cash was available for distribution. Moreover, its revenue and EPS have grown at respective CAGRs of 16.6% and 20.2 over the past three years.

Looking forward, NEE sees significant growth potential in the U.S. renewables and storage market, expecting it to triple over the next seven years from 140 gigawatts to around 375-450 gigawatts. With an existing 74-gigawatt operating fleet, split between FPL and Energy Resources, the company aims to expand to over 100 gigawatts by 2026, further strengthening its operational scale and creating additional value for its stakeholders.

On June 17, NEE paid its shareholders a quarterly dividend of $0.52 per share. With 28 consecutive years of dividend growth and a forward dividend yield of 2.84%, NEE offers an attractive proposition for income-oriented investors seeking exposure to the clean energy sector. Also, it has a four-year average dividend yield of 2.23% and has grown its dividend payouts at a CAGR of 10.2% over the past three years.

All said, NEE stands at the forefront of the energy transition, leveraging its dual strengths in regulated utilities and renewable energy to drive sustainable growth and value creation. The stock has gained over 21% over the past six months and over 19% year-to-date.

Should You Buy Chevron or NextEra Energy?

Analysts are bullish on these dividend-paying giants, each presenting significant upside potential. So, how do these two stack up?

Mizuho gave Chevron a Buy rating and raised the price target from $200 to $205, implying a substantial 23.59% upside from the current price of $156.64. This sentiment is echoed by other prominent analysts, with HSBC and Scotiabank setting price targets of $178 and $195, respectively. This results in an average price target of $186.95, suggesting a potential 16% upside.

On the other hand, NextEra Energy has also caught the eye of analysts. BMO Capital recently maintained an Overperform rating on the stock and raised the price target from $78 to $79, suggesting an 8.3% upside from the current price of $72.46.

In terms of dividend yield as a rough measure of value, CVX's 4.2% yield is far more attractive compared to NEE's modest 2.8%. While both stocks historically offered higher yields during oil downturns, NextEra Energy's current yield is comparatively lower. This positions CVX as a stronger income play and suggests it may be the more attractive stock between the two.

Investing Like a Billionaire: Everything Berkshire Hathaway Offers to Ordinary Investors

Posted on by The INO.com Team

With a $867.46 billion market cap, Berkshire Hathaway (BRK.A) (BRK.B), a diversified holding company, is led by Warren Edward Buffett, who is one of the world’s renowned investors with a long track record of successful capital allocation and value creation. As of May 8, 2024, he has a net worth of $133.50 billion, making him the eighth-richest person in the world.

Buffett’s substantial wealth primarily stems from his significant holdings in Berkshire Hathaway, a conglomerate with assets exceeding $1 trillion. Under Buffett’s expertise and exceptional leadership, Berkshire has historically delivered robust and consistent long-term growth, outperforming various other investment options.

From 1965, when Warren Buffett took control of the company, to 2023, Berkshire’s share price surged by a staggering 4,384,748%, surpassing the total return of the S&P 500 with dividends included of 31,223%. Additionally, Berkshire has continued its solid performance into 2024, with a double-digit percentage gain.

Berkshire’s Portfolio Reflects Buffett’s Investment Strategy

Known as the “Oracle of Omaha,” Warren Buffett stands out as one of the most accomplished investors of all time. He follows the Benjamin Graham school of value investing, seeking out securities with unreasonably low prices compared to their intrinsic worth. He often assesses the company’s long-term potential rather than short-term market trends.

Buffett considers company performance, profit margins, management team, and business model. He believes in investing in high-quality businesses with solid competitive advantages or “economic moats,” enabling them to maintain or expand their market share over time.

Sticking to his investment policy, Buffett’s holding company, Berkshire Hathaway, aims to “buy ably-managed businesses” possessing various characteristics, such as enduring competitive advantage, at extremely low prices.

For instance, the acquisition of See’s Candies in 1972 demonstrated Buffett’s strategy, as the company's robust brand and loyal customer base made it a highly profitable long-term investment. He favors companies with strong brands and business models that own their market niche, creating formidable barriers for competitors trying to enter and beat them at their game.

Berkshire Offers Diversification Across Industries

Berkshire Hathaway’s top holding is Apple Inc. (AAPL). Thanks to its strong brand and customer loyalty, it has remained one of Buffett’s favorite stocks for a long time. He has previously referred to AAPL as the “best business I know in the world.”

BRK.B recently disclosed that it had cut its stake in Apple by around 13% in the first quarter. It was reported that Berkshire’s Apple bet was worth $135.4 billion, implying nearly 790 million shares. Despite this trim, the iPhone maker is still Berkshire’s biggest holding by far, with a 39.8% weight in its publicly traded portfolio.

Another consumer goods company that Buffett loves is The Coca-Cola Company (KO). He recognized the company’s iconic brand, attractive dividends, and market advantages. Coca-Cola’s robust brand has enabled it to mitigate the impact of inflation by transferring higher costs to customers while still being able to generate growth.

At around 6.9%, KO is the fourth-largest holding in Berkshire’s portfolio. Berkshire owns a 9.3% stake in the company.

Meanwhile, Warren Buffett holds significant investments in the energy sector. During the fourth quarter of 2023, Buffett’s Berkshire increased its stakes in two major oil and gas companies, Chevron Corporation (CVX) and Occidental Petroleum Corporation (OXY).

Berkshire Hathaway owns about a 6.7% stake in CVX. According to Berkshire’s February shareholder letter, the firm also holds a 27.8% stake in OXY and has warrants to increase its ownership further at a fixed price.

Chevron (about 5.5% of the portfolio’s total weight) and Occidental (4.5%) provide investors with exceptionally good returns amid the inflationary periods and pay attractive dividends.

In addition, Buffett is fond of financial institutions and insurance companies, viewing them as a strategic bet on the long-term health of the U.S. economy. Berkshire's top two financial holdings are Bank of America Corporation (BAC) and American Express Company (AXP). These financial stocks comprise approximately 21% of the Berkshire portfolio’s total weight.

Outstanding First-Quarter Operating Earnings and Record Cash Hoard

For the first quarter that ended March 31, 2024, Berkshire’s total revenues increased 5.3% year-over-year to $89.87 billion. Revenues from Railroad, Utilities and Energy rose 11.2% year-over-year, and revenues from Insurance and Other grew 3.2%.

The Warren Buffett-led conglomerate reported first-quarter operating profit, which encompasses earnings from the company’s wholly-owned businesses, grew 39% from the year-ago period to $11.22 billion. This remarkable surge was led by a 185% year-over-year increase in insurance underwriting earnings to $2.60 billion. Insurance investment also soared 32% to over $2.50 billion.

However, net earnings attributable to Berkshire Hathaway shareholders declined by 64.2% year-over-year to $12.70 billion.

During the first quarter, the company’s cash pile reached a record high of $188.99 billion, up from $167.60 billion in the fourth quarter.

“We had much-improved earnings in insurance underwriting. And then our investment income was almost certain to increase,” Buffett said at Berkshire’s annual shareholder meeting in Omaha, Nebraska. “And I said that in the annual report because yields are so much higher than they were last year. And we have a lot of fixed, short-term investments that are very responsive to the changes in interest rates.”

Bottom Line

Berkshire Hathaway, led by a well-known investor, Warren Buffett, follows an intrinsic value investing approach, aiming at buying undervalued companies with solid fundamentals, competitive advantages, and long-term growth potential. Berkshire owns a diverse portfolio of businesses, including insurance, utilities, transportation, retail, and technology, among others.

Moreover, Berkshire’s top five holdings pay attractive dividends, which indicates Warren Buffett’s interest in stocks that offer a stable income stream.

Buffett’s conglomerate recently reported a significant surge in operating earnings in the first quarter of fiscal 2024, primarily driven by an increase in insurance underwriting earnings and a record cash pile that nears $200 billion.

USB analyst Brian Meredith maintained a Buy rating on Berkshire, citing the recent earnings beat and noting that Geico is on track to catch up to rivals Progressive and others on data analytics by 2025.

Berkshire Hathaway has historically delivered impressive and consistent returns. From 1965 to 2023, its share price skyrocketed 4,384,748%, more than 140 times the total return of the S&P 500, with dividends included. Moreover, Berkshire shares have already outperformed this year, with each share class having advanced more than 12%, while the S&P is up by nearly 8%.

Shares of BRK.B have gained approximately 16% over the past six months and more than 22% over the past year.

Looking ahead, analysts expect BRK.B’s EPS for the fiscal year (ending December 2024) to increase 14.6% year-over-year to $19.70. Further, the company’s EPS and revenue for the fiscal year 2025 are expected to grow 1.4% and 5.6% from the prior year to $19.97 and $376.61 billion, respectively.

Thus, by owning BRK.B shares, investors can gain exposure to Berkshire’s diversified portfolio of businesses, Buffett’s expertise, and stable growth and performance.

Warren Buffett's Oil Investments: Insights Into Berkshire Hathaway's Oil Holdings

Posted on by The INO.com Team

Warren Buffett, a prominent billionaire investor known for his investments through Berkshire Hathaway, holds significant investments in the oil sector, with holdings in Chevron Corporation (CVX) and Occidental Petroleum (OXY).

Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) owns 126.1 million shares of CVX, valued at $1.5 billion. This ownership stake represents about 6.7% of the company’s outstanding shares.

Berkshire’s purchase of shares in CVX during the fourth quarter of 2023 is seen as a significant endorsement of Chevron’s $53 billion merger with Hess Corporation (HES), announced on October 23. This move is interpreted as a strong vote of confidence for Chevron's investors and the oil and gas sector as a whole.

Additionally, per Berkshire Hathaway’s February shareholder letter, the multinational investment firm holds a 27.8% stake in OXY and has warrants that could increase its ownership further at a fixed price.

“We particularly like its vast oil and gas holdings in the United States, as well as its leadership in carbon-capture initiatives, though the economic feasibility of this technique has yet to be proven,” Buffett said, “Both of these activities are very much in our country’s interest.”

In November, Occidental Petroleum and BlackRock, the world’s largest asset manager, announced a joint investment of $550 million in Occidental’s direct air capture plant, Stratos, located in West Texas. The plant is anticipated to commence operations by the middle of the upcoming year.

Direct air capture (DAC) technology differs from traditional carbon capture methods because it extracts carbon dioxide directly from the atmosphere instead of capturing emissions at the source, such as at industrial facilities like steel plants.

According to the International Energy Agency (IEA), 27 DAC plants have been commissioned globally to date, with plans for at least 130 DAC facilities in several stages of development. Both Occidental Petroleum and Exxon Mobil Corp (XOM) estimate that DAC could evolve into a multi-trillion-dollar market for oil producers by 2050 as scale brings costs down.

Warren Buffett has expressed admiration for Vicki Hollub, the President and CEO of Occidental Petroleum, who is the first woman to lead a major American oil company. “Under Vicki Hollub’s leadership, Occidental is doing the right things for both its country and its owners,” Buffett stated. “No one knows what oil prices will do over the next month, year, or decade.”

“But Vicki does know how to separate oil from rock, and that’s an uncommon talent, valuable to her shareholders and her country,” he added.

Understanding the Dynamics of the Energy Sector

Also, Berkshire's investments consider the dynamics of the energy sector, including factors such as supply and demand trends, geopolitical events, and technological advancements. Oil prices climbed above $90 per barrel last week. This surge was attributed to tensions in the Middle East, concerns regarding tightening supply, and optimistic expectations about demand growth amid improving economies.

Brent crude passed around $91 per barrel on Friday, taking its gains for the year to 18%. The U.S. West Texas Intermediate crude, closely linked to U.S. gasoline prices, has been even stronger, with 21% gains. Both benchmark crude oil prices settled at their highest levels since October 2023.

The oil market could see prices rise to $100 per barrel, especially if OPEC+ maintains its production cuts and extends them further into the second half of the year. This scenario is supported by expectations of robust demand, particularly in the second half, driven by economic growth and increased consumption.

Vitol’s Muller told on Gulf Intelligence’s Daily Energy Markets podcast that he anticipates a significant uptick in refined product demand globally, at around 2 million barrels per day (bpd) than in the same period last year.

This bullish outlook is echoed by experts like Bob McNally, founder of consultancy Rapidan Energy and a former White House adviser, who told Bloomberg Television in an interview that the market is currently “on firm fundamental footing.”

“I think $100 oil is entirely real — it just requires a little more risk pricing on the true geopolitical risk,” McNally added.

Now, let’s review the fundamentals of CVX and OXY in detail:

Chevron Corporation (CVX)

With a $299.80 billion market cap, CVX engages in integrated energy and chemicals operations internationally. It produces crude oil and natural gas; manufactures transportation fuels, lubricants, petrochemicals, and additives; and develops technologies that enhance its business and the industry.

The company also aims to grow its traditional oil and gas business, lower the carbon intensity of its operations, and expand its new lower carbon business in renewable fuels, hydrogen, carbon capture, and other emerging technologies.

On April 4, Chevron New Energies (CNE), a CVX division, announced a lead investment in ION Clean Energy (ION), a Boulder-based tech company that provides post-combustion point-source capture technology through its third-generation ICE-31 liquid amine system. ION raised $45 million in Series A financing led by CNE. 

“We continue to make progress on our goal to deliver the full value chain of carbon capture, utilization, and storage (CCUS) as a business, and we believe ION is a part of this solution,” said Chris Powers, vice president of CCUS & Emerging with CNE.

Also, on March 19, CNE and JX Nippon Oil & Gas Exploration Corporation signed a Memorandum of Understanding (MoU) that offers a framework to evaluate the export of Carbon Dioxide (CO₂) from Japan to Carbon Capture and Storage (CCS) projects located in Australia and other countries in the Asia Pacific region.

For the fourth quarter ended December 31, 2023, CVX’s total revenues and other income declined 16.5% year-over-year to $47.18 billion. Its total adjusted earnings and adjusted EPS decreased 17.8% and 15.6% over the prior-year quarter to $6.45 billion and $3.5, respectively.

However, the company’s worldwide and U.S. net oil-equivalent production set annual records. Worldwide production increased 4% from a year ago to more than 3.1 barrels of oil-equivalent per day, primarily due to the acquisition of PDC Energy, Inc. (PDC) and growth in the Permian Basin, up 10% from 2022. This was led by 14% growth in the U.S.

Last year, CVX returned more cash to shareholders and produced more oil and gas than any other year in the company’s history. Cash returned to shareholders was nearly $26 billion for the full year, 18% higher than the prior year’s total.

The company’s Board of Directors further declared an 8% increase in the quarterly dividend to $1.63 per share, paid on March 11, 2024, to all holders of common stock, as shown on the transfer records of the corporation at the close of business on February 16, 2024.

CVX’s annual dividend of $6.52 translates to a yield of 4.03% on the current share price. Its four-year average dividend yield is 4.43%. Moreover, the company’s dividend payouts have increased at CAGRs of 6.08% and 6.3% over the past three and five years, respectively.

For 2024, CVX announced an expected organic capital expenditure range of $15.5 to $16.5 billion for consolidated subsidiaries (capex) and an affiliate capital expenditure (affiliate capex) budget of around $3 billion. With the acquisition of PDC Energy, Chevron announced an annual capex guidance range of $14 to $16 billion through 2027.

Following the completion of the Hess acquisition, which is expected to be finalized in the first half of 2024, CVX’s annual capex budget is expected to increase significantly to a range of $19 billion to $22 billion.

Analysts expect CVX’s revenue for the fiscal year (ending December 2024) to increase by 1.8% year-over-year to $204.64 billion. However, the consensus EPS estimate of $12.82 for the current year indicates a decline of 2.4% year-over-year.

Occidental Petroleum Corporation (OXY)

With a market cap of $60.94 billion, OXY is a global energy company with assets primarily in the U.S., the Middle East, and North Africa. The company is one of the largest oil and gas producers in the U.S., including a leading producer in the Permian and DJ basins and offshore Gulf of Mexico. 

On February 8, OXY’s Board of Directors declared a regular quarterly dividend of $0.22 per share on common stock, payable on April 15, 2024, to stockholders of record at the close of business on March 8, 2024. The annual dividend per share has increased to $0.88 from its previous rate of $0.72.

OXY’s annual dividend translates to a yield of 1.27% on the current share price. Its four-year average yield is 3.44%. The company’s dividend payments have grown at a CAGR of 5.7% over the past three years.

On December 11, 2023, OXY entered a purchase agreement to acquire Midland-based oil and gas producer CrownRock L.P., a joint venture of CrownQuest Operating LLC and Lime Rock Partners. This acquisition is anticipated to deliver increased free cash flow on a share basis, including $1 billion in the first year based on $70 per barrel WTI.

The acquisition further complements and strengthens Occidental’s leading Permian portfolio by adding around 170 thousand barrels of oil equivalent per day (Mboed) of high-margin, lower-decline unconventional production in 2024 and approximately 1,700 undeveloped locations. It enhances the company’s resource base and growth potential in the region.

During the fourth quarter that ended December 31, 2023, OXY’s revenues and other income decreased 9.6% year-over-year to $7.53 billion. Its income before income taxes declined 35% from the prior year’s quarter to $1.56 billion. Its non-GAAP EPS came in at $0.74, down 54% year-over-year.

Furthermore, the company’s current liabilities increased to $9.15 billion as of December 31, 2023, compared to $7.76 billion as of December 31, 2022.

Street expects OXY’s revenue and EPS for the first quarter (ending March 2024) to decline 9.4% and 45.8% year-over-year to $6.58 billion and $0.59, respectively. For the fiscal year 2024, the consensus EPS estimate of $3.37 indicates a decrease of 8.9% year-over-year.

However, the company’s revenue for the ongoing year is expected to increase 2.5% year-over-year to $29.63 billion.

Bottom Line

Warren Buffett’s investments in the oil sector through Berkshire Hathaway have garnered attention, particularly with holdings in CVX and OXY. Hathaway’s oil investments are also aligned with the demand-supply dynamics in the energy sector. The recent surge in oil prices, driven by tensions in the Middle East, supply constraints, and an optimistic demand outlook, reflects the evolving landscape that Buffett’s investments navigate.

While rising oil prices, production growth, strategic acquisitions and investments, and continued commitment to rewarding shareholders via dividends make CVX an attractive option for long-term investors seeking growth, the company continues to face several challenges, including commodity price dependence, higher operational costs, and uncertainty in the energy transition.

Chevron's core business in oil and gas exploration (upstream) makes it susceptible to boom-and-bust cycles in commodity prices. The company’s earnings dropped in 2023 due to lower oil and gas prices and reduced refining profits, highlighting the ongoing challenge of staying profitable amid market changes. Also, analysts have presented a mixed outlook for 2024.

CVX also faces cost headwinds, with its operating expenses trending upward and inflationary pressures threatening to squeeze margins further. Moreover, the global shift toward renewable energy presents a long-term challenge for oil and gas companies. 

Regarding OXY, its investments in low-carbon ventures, strategic acquisitions, and technology advancements present numerous opportunities for growth and industry leadership. However, the company must also tackle challenges related to its reliance on commodity prices, managing operational costs and debt obligations, and navigating global economic uncertainties.

While Occidental’s last reported earnings topped analyst estimates, they dropped compared to year-ago values. Further, analysts appear bearish about the company’s financial performance this year.

Staying profitable in such a volatile environment requires strategic resilience, efficient cost management, and a focus on operational excellence to navigate through boom-and-bust cycles effectively. So, given the mixed performance and outlook for CVX and OXY, investors may consider waiting for a better entry point before investing in these stocks.

While Buffett’s endorsement and long-term investment strategy hold weight, it’s essential to assess the companies’ financial health, growth prospects, and industry trends comprehensively.